Glossary of Terms

True Lease

A lease is generally described in state law as a lease of property as described in UCC Article 2A-103(1)(j). However, a true lease involves other considerations. Section 1-201(37) of the UCC (1-201(37)) includes a "per se" or "bright-line" test to determine whether a transaction should be treated as a true lease or disguised security agreement. This test requires an objective analysis and is supposed to disregard the documents' labels and the parties' intent. Current law also includes an "economic realities" test designed to evaluate the facts of each transaction to determine whether the transaction is a lease or disguised financing. The bright-line and economic realities together have created confusing and inconsistent law affecting the leasing industry in determining whether a transaction constitutes a true lease. (Courtesy www.elfaonline.org)